Index  ABSTRACT



INTRODUCTION



THE PROBLEMS



Banking Systemic Risk



Financial Exclusion



Underserved Microeconomy



Inadequate Systems and Unfair practices



OUR SOLUTION UK Regulated, Global Bank Account Based on Blockchain

9  9 

SEPA & UK Faster Payments

10 

Mobile Application

10 

Black Card

11 

Central Bank Digital Currencies

14 

Example Use Cases

16 

TECHNOLOGY

19 

Blockchain

19 

Federation

19 

Smart Contracts and Regulations

20 

Tokenization of FIAT Funds

20 

Control & Self-Determination

21 

Privacy

21 

Recovery & Succession

22 

Cloud Hybrid

22 

Identity & Data Data Architecture

23  23 

 



      Biometrics

24 

Peer-to-Peer Identity Validation

24 

Extended Identity Verification

25 

SECURITY & RISK

26 

Human Resources

26 

Risk Assessment

27 

Business Continuity

27 

Control Activities

27 

Information Management

30 

Applicational Security

30 

COMPLIANCE & REGULATIONS

32 

Fair Banking

32 

GDPR

32 

KYC & AML

33 

Social KYC

34 

PSD2

36 

Local Regulations

37 

BUSINESS

38 

Company Structure

38 

The BAX Token

40 

CONCLUSION

45 

APPENDICES

46 

Appendix I: Banking Systemic Risk

46 

Appendix II - Recent Innovations

49 

Appendix III: Central Bank Digital Currencies

51 

Appendix IV: Token Sale Summary

54 

DISCLAIMER

55 

 



     

ABSTRACT  The microeconomy is fundamentally underserved by the incumbent banking system.  Emerging technologies provide the opportunity to create an alternative that addresses  perennial problems of the banking system in new ways, including systemic risk, data  privacy, financial exclusion and sluggish competition.  Distributed ledger technologies, biometrics and machine learning provide us with the  tools to create a new kind of bank, global and decentralised, which can service and  empower individuals and businesses around the world in ways that traditional banks  simply cannot. Built to operate independently of legacy systems, this new  decentralised bank will serve, stimulate and galvanise the microeconomy, while  operating in full compliance with regulations around the globe as well as Fair Banking  principles .  BABB is the decentralised bank for the microeconomy, providing individuals and  businesses with a UK bank account, powered by blockchain technology. The account is  managed via a smartphone app and provides access to a decentralised payment card.  In addition, partnerships with central banks allow for the integration and issuance of  other digital currencies around the world, further stimulating local micro-economies  and expanding the reach of the BABB solution and its underlying BAX token.  BABB is already an FCA Authorised Payment Institution (API) and will be applying for a  Banking licence in early 2018. 

   

 

 



     

INTRODUCTION  The financial services industry is - still - ripe for radical disruption. The existing  banking system is built on an outdated infrastructure which no longer serves the  interest of its retail customers or the microeconomy as a whole. Based on decades-old  technology, mainstream banking completely excludes a third of the global population  and is very expensive for the other two thirds.  Many energetic startup companies with bright ideas and ambitious plans have sought  to better serve a segment of the unbanked, the underbanked or the underserved people  of this world. For the most part, they’ve attempted this using existing structures,  templates, infrastructure and technologies. The progress made so far, by the fintech  industry and financial inclusion initiatives, has been promising but limited.  BABB’s approach is different. BABB will redesign the economy from the ground up,  transforming it from a rigidly hierarchical and exclusionary system into a  decentralised and inclusive one. By combining blockchain technology, biometrics and  artificial intelligence, we are creating the future of banking, radically different from  what the world has seen before.  The World Bank serves the macroeconomy, whereas BABB is the World Bank for the  microeconomy. Our ambition is a relatively simple one: everyone in the world should be  able to open a UK bank account. The implications of a fully banked global society,  however, are huge. This will be a global society of people using smart contracts to make  deals, leveraging their social connectivity to make better use of their money.  This whitepaper outlines the problems as we see them, the BABB solution and our plan  to implement it. We aim to communicate both the full range of our ambition, a broad  level of technical detail, and information on how we comply with regulatory  requirements.   

 

 



     

THE PROBLEMS  The existing banking system is built on an outdated infrastructure which no longer  serves the interest of its retail customers or the microeconomy as a whole. Individuals,  freelancers and Small and Medium-sized Enterprises (SMEs) have always struggled to  obtain affordable funding from these banking giants and often been excluded  completely. This problem has been exacerbated recently by the banks’ reckless  behaviour in the run-up to the financial crisis, which has further increased the public’s  discontent towards these traditional banking institutions.  BABB has identified key problems with the existing banking system, which we seek to  address. 

Banking ​Systemic Risk  As a society and individuals, we have become increasingly reliant on banks over time.  We depend upon banks for daily tasks such as paying for our groceries with a debit or  credit card, obtaining loans/mortgages to buy a house, or opening a savings account to  put money away for the family holiday.  Banking services have become ingrained in our day-to-day life, and this over-reliance  has resulted in banks having a worrying amount of control over both our money and  personal data.  This loss of privacy and control has far-reaching effects, effectively exposing us to the  systemic risks from the banking industry, as seen in the global financial crisis in 2008.  For a more thorough analysis on the systemic banking risks we are inherently exposed  to, please refer to A ​ ppendix I​. 

Financial Exclusion  It is easy to take financial services for granted. Currently, 2 billion - or 40% of the global  adult population - have no bank account or mobile money services1. These individuals  have very limited access to savings, credit, mortgage and insurance products that are  common in developed marketplaces, meaning consumers cannot fulfil their financial  needs effectively and firms miss opportunities to utilise untapped financial resources. 

1

 

The Global Findex Database 2014 - Measuring Financial Inclusion around the World   



      The consequences of financial exclusion go beyond the greater risk and higher cost to  consumers of relying on cash and informal financial markets. Forcing people to rely on  these methods also undermines government’s ability to collect tax and monitor  expenditures.    The following chart2 illustrates this reality: 

  Many existing financial products are attempting to improve financial inclusion by  providing better prices for consumers. Green Dot Bank offers prepaid debit cards to  serve millions of low and moderate income families; Bank of America offers ‘Safe  Balance’ account targeting those traditionally unbanked who cannot meet minimum  balance requirements.  However, affordable financial services for the unbanked are not yet offered at large  scale, as financial institutions struggle to match the high risk, high volatility nature of  these customers and the products they need. The root of the problem is threefold:  1. Difficult physical access to branches/technological access to online banking  2. Over-reliance on cash, particularly in emerging markets  3. Customers do not have enough savings or cash flow to benefit from an account 

2

Capgemini - The World Payments Report   



     

Underserved Microeconomy  The efficient distribution of resources between businesses and individuals is of  paramount importance to our quality of life and sense of well-being. The obvious  conclusion, as we look to communities around the world, is that the current distribution  is inefficient.  Individuals, freelancers and SME’s are often excluded completely from the system. In  the UK - one of the wealthiest economies in the world - there are still 1.5m people who  are unbanked3. In addition, many of the people and businesses who do have access to  banking, only have access to a very limited number of services, with their financial  needs often not met due to circumstances outside of their control (e.g. their risk profile  does not fit within strict risk parameters set by their bank).  Inefficiency in the economy can be exacerbated when traditional and modern banking  systems reduce access to banking services to individuals, freelancers and SME’s,  reducing innovation, entrepreneurship and ultimately our quality of life. 

Inadequate Systems and Unfair practices  There has been an abundance of innovation within the banking and payments space in  the last few years, which seek to make money management and transfer more  convenient and accessible. We’ve seen an explosion in the offering of e-wallets, mobile  money, new currency & credits and digital currencies.  However, each of these innovations has its own limitations, or has not yet been  leveraged to provide a comprehensive and global solution to the problems we find. For a  more detailed analysis on these innovations please refer to A ​ ppendix II​.  As we take stock of the current state of things, we conclude that existing systems are  not designed to support the local or global microeconomy nor do they encourage  financial inclusion, primarily due to the following reasons:   1. Based on Asymmetric information  When one party has more information than another, there is an imbalance of  power between them when transacting. This increases the costs and delays of  transactions, requires third party intermediaries and leads to major issues such  as adverse selection, moral hazard, and information monopoly.  3

University of Birmingham - Financial Inclusion Annual Monitoring Report 2015   



      2. Use Customer data to the detriment of their Privacy  Data is not always used appropriately and is often sold to third parties for profit  or unrelated purposes. Traditional banking systems will be adversely affected by  the upcoming GDPR regulation in the E.U., and will have to completely redesign  how they collect, use, and store customer data.  3. Exclusive or non-inclusive  The existing financial system is not incentivised to bank the unbanked or  underbanked global population due to the costs incurred in onboarding them as  customers considering the small balances they may have. Legacy systems are in  themselves a barrier to financial inclusion. Integration with third parties and  adding intermediaries is not a solution, and is not economically viable to reach  the remaining unbanked population. Costs must be reduced from the ground up  to include these people in the financial system.  4. Competition  Banking is often considered an oligopoly, where a small number of firms have a  large market share. This can lead to collusion on pricing to the detriment of  consumers. By contrast, a decentralised system takes advantage of the network  effect, whereby banking becomes more effective when more people use it, and  people can seek services from each other, providing more choice.  5. Centralised  The centralised nature of these institutions creates an inefficient distribution of  power, and puts customers data and money at risk.   We connected the dots between these shortcomings of the incumbent banking system,  the economic realities, and studied the successes and mistakes of the latest  innovations. Our research, coupled with our knowledge of regulatory compliance,  financial services and emerging technologies, has allowed us to devise an effective  banking solution for the global microeconomy.  Our global, diversified and highly creative team has designed a blueprint for a global  decentralised bank, which offers a sophisticated solution to the challenges faced by the  microeconomy.     

 

 



     

OUR SOLUTION  BABB leverages blockchain, biometrics and machine learning to offer revolutionary  decentralised banking services for people across the globe. Regardless of background,  location or income, BABB will offer a UK bank account to anyone in the world, helping  increase financial inclusion and social integration, while also empowering local  economies to generate wealth for themselves.  We will connect people and businesses to a frictionless new global financial system  which revolutionises the existing micro-economic ecosystem through advanced  technological, social, economical and regulatory capabilities.   By combining social connectivity with accessible banking (social banking), we are  building a global banking network fostering international collaboration and  inter-community engagement.  In essence, BABB is building a decentralized bank powered by the blockchain,  operating a full reserve and integrating digital currencies all around the world. 

UK Regulated, Global Bank Account Based on Blockchain  BABB will offer a bank account on the BABB platform, compliant with UK regulations,  available to any eligible person or business in the world, instantly, without the need for  a UK address or credit history.   To open a UK bank account with BABB all you need is a valid ID document such as a  Passport or National ID card. Access to basic account services will also be available to  those without identity documentation by merely using biometric authentication and  peer-verification from someone fully identified.  We leverage blockchain technology to facilitate the movement of fiat currencies  anywhere in the world instantly, cheaply and securely. Through tokenization, BABB can  host any fiat currency on its platform, as well as our own native cryptocurrency, BAX.   We rely on technology and innovation to provide a bank account which is orders of  magnitude cheaper, easy to use, secure and most importantly - accessible to all. 

 



     

SEPA & UK Faster Payments  With your UK BABB account, you will experience seamless transition between legacy  banking and your blockchain-based bank account. In addition to the usual  cryptographic address, BABB Accounts are issued an IBAN for european and  international bank wires, as well as an Account Number and Sort Code for UK national  transactions.  This will allow funds to be onboarded and off-boarded directly into the banking  infrastructure, to maximize the usefulness of your BABB account. This is the primary  bridge through which we’ll connect BABB to the existing financial systems, allowing for  onboarding and offboarding of funds, particularly larger volumes. 

Mobile Application  Via the BABB Mobile Application, anyone can quickly  create a bank account as easily as “taking a selfie and  humming a tune”, with no ID document required to open  a basic wallet. Upload one form of ID or get referred by  someone who is fully verified in the system to get  access to your own basic bank account.  BABB allows businesses and individuals to control their  money anywhere, as long as they have an internet  connection.  BABB supports traditional banking functions such as  transfers, payments, cash in/out, as well as other  peer-to-peer transactions using smart contracts.  In addition, users can generate income from their own  money, by providing peer-to-peer services such as  currency exchange and loans and earning a fee, just like banks do.     

 

 

10 

     

Black Card    The BABB Black Card is a secure payment card that links directly with your BABB bank  account via a QR code or NFC. It allows both a debit-like functionality, or it can be  issued as a pre-paid card for your friends and family. This approach allowed us to  design a simple yet elegant card with no need for a chip and pin.  With the BABB Black Card you will be able to spend your funds within your BABB bank  account in shops and in-person (peer-to-peer). Retailers can accept payment using the  BABB card by simply downloading the BABB app and scanning the QR code or via NFC.  Payment is made instantly into the retailer's bank account and the funds can be used  immediately.  

  The BABB Black Card is the first card of its kind, containing no personal information on  the card itself, which greatly improves card security.  If the card is lost, it can be easily unlinked from your bank account, preventing anyone  else from using it. Should you find your card again, simply scan the QR code on the card  via your BABB app and it will link to your BABB bank account once again. If the card is  lost permanently, new cards will be available very cheaply from certain major online  retailers with next day delivery. Alternatively, you can pick up a spare from a friend, or  even print a less durable - but equally functional - paper version of the card.  Why have we decided not to use traditional card systems and create a new  decentralised card with no chip?  ●

Opportunity  According to World Bank statistics, only 2% of people in developing economies  have a credit card and only 15% have access to a debit card4. This presents a huge 

4

w ​ ww.worldbank.org/curated/en/187761468179367706/pdf/WPS7255.pdf   

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      opportunity to introduce a simple, cheap and more efficient payment card with  increased security and accessibility for the underbanked.  ●

Access to Card Processing services  Millions of SME’s across the world struggle to get card machines from the banks,  as it can often be hard for them to qualify for a card payment facility. This forces  them to operate in cash, which introduces significant personal risk from holding  large amounts of cash. 



Smartphone penetration  Over half the world now have a smartphone. Downloading the BABB app to  process card payments with our Black card using the QR code is cheaper, faster  and more convenient than integrating with traditional card payment solutions  such as Visa or Mastercard. 



ATM’s are being phased out  With the introduction of NFC technology and the trend towards a cashless  economy, there is less need for a card with a chip to access cash from ATMs. 



Cost  The costs associated with facilitating traditional card payment services can be  prohibitively expensive for SME’s. Card processing rates can be up to 5%-6% of  the transaction and this cost prevents millions of retailers across the world from  integrating with traditional card payment services. 

● Access to funds  Retailers who accept payment with the BABB Black Card can receive the funds in  their BABB bank account instantly.  Traditional card issuers have a very low penetration rate across developing countries  (see graphic below) due to the above reasons. This presents a great opportunity for the  BABB Black Card introducing the following key benefits over traditional card issuers:  1. Easy to distribute (eg, via large retailers)  2. No barriers to entry  3. Affordable   4. Secure  5. Available 

Essentially, with the Black Card we create a new universal physical payment system.   

12 

     

 

 

13 

     

Central Bank Digital Currencies  At  BABB,  we  believe  it  is  inevitable  that  Central  Bank  Digital  Currency  (CBDC)  will  be  adopted  by  Central  Banks  (CB)  over  the  next  decade.  This  opinion  was  initially  formed  in  2015  based  on  our  assessment  of  the  overall  social  benefits  for  the  microeconomy  -  you can read our full analysis in A ​ ppendix III​.   In  the  second  half  of  2017,  we  have  seen  further  validation  of  this  thesis, with a slew of  announcements  by  Central  Banks  all  around  the  world,  each  considering  launching  their  own  digital  currency.  For  instance,  the  Reserve  Bank  of  India’s  research  institute  has  recently  argued  that  blockchain  technology  could  provide  the  necessary  basis  for  the digitization of the Indian rupee.   We  believe  CBDCs  are  essential  in  establishing  improved  payment  networks  at  a  local  level,  thereby  stimulating  micro-economies.  Our  focus  on  working  with  central  banks  and  supporting  additional  digital  currencies  is  in  alignment  with  our  goal  of  deep  financial,  economic  and  social  inclusion,  and  will  help us support grassroots initiatives  and  stimulate  micro-economies,  while  at  the  same  time  improving  cross-border  and  foreign exchange of these currencies via the BAX token.  BABB will look to work with Central banks in primarily two ways:  1. Integration with existing CBDCs  Central banks that have already launched their digital currency could benefit from  BABB’s inter-blockchain approach and provide for a natural extension of BABB,  allowing us to quickly onboard those currencies.  This may be executed by entering agreements directly with such central banks, or by  establishing partnerships with local banks, which would provide regulatory coverage  for their jurisdiction and associated currency.  2. Issuance of new CBDCs  Central banks looking to launch their own digital currency can leverage BABB’s  technology, and host and operate domestically a portion of the federated network. This  takes into consideration local jurisdictions and the complexity of the existing fiscal and  monetary policies. This sub-network essentially becomes a part of BABB’s global  platform, allowing central banks to ensure security, regulations and economic control,  while at the same time providing their citizens with the opportunity to transact not just  locally on the central bank’s local system, but also internationally on any currency  supported by BABB.   

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      In essence, we can provide central banks with the mechanisms and infrastructure to  integrate or issue their digital currencies, as well as the products for their customer  population to interact with this currency in multiple ways. Finally, data collected by  central banks from our platform will provide the insight needed to manage and regulate  such a system efficiently and effectively. 

   

 

 

15 

     

Example Use Cases  The BABB App is designed to solve defined problems and address specific use cases  which guide our product and design processes.  Peer-to-Peer Cash  BABB enables users to withdraw and deposit cash from their account by engaging with  other users or agents. Also, the app makes it easy to exchange and withdraw a currency  that is different from the one currently held in a BABB account.  BABB users do not need to depend on proximity to an ATM, whether it is functioning, or  whether it’s on their card network (a reality in many countries). They also don’t need to  adjust to a bank’s working hours and fees. All they will need to do is choose the local  person or business they would prefer to deal with.  Example: 

Eden lives in Ethiopia where her family owns a crop farm.  She earns a very small wage from the farm and employs  five workers.  As Eden often struggles financially, she receives £300 per  month in her BABB account from her son who works in a  small coffee shop in London.  Eden is expected to pay her staff in cash and opens her  BABB app to find a local BABB user who can help.  She finds a vegetable stand in her local village, who is  willing to exchange an electronic payment for physical  cash, in turn receiving a small fee. They agree to meet at  the store to complete the transaction and Eden receives  the Ethiopian Birr in cash.     

 

 

16 

      Peer-to-Peer Borrowing  Through the BABB app, users can lend to and borrow  from one another. Payment terms and rates are clearly  defined, agreed on, and fast to conclude.  Example: 

Pablo runs a fruit stand at a local market in São Paulo,  Brazil. It has been a difficult month for his business:, the  increased rain has resulted in a drop in customer  numbers. He is looking for a small loan to help restock  his stand for the following weeks, and so he sets up a  loan request in the app.  Pablo requests R$1000 (2) for one month (3), and sends  his request only to his friends and family. The app  automatically calculates the payments (4) and sets up  the smart contracts.  Luiz (his cousin living in Curitiba) receives the loan request in his BABB app. Having  had his own business himself, he sympathises and decides to cover the full loan. The  funds are transferred instantly into Pablo’s account and he can now restock the stand.   Peer-to-Peer Fundraising  BABB  will  provide  tools  for  international  and local fundraising, where anyone can raise  funds  using  3  types  of  mechanisms:  ​Private  is  only  by  invitation;  ​Personal  is  broadcasted  to  friends  and family; and ​Public is for anyone to start a global fundraising  campaign,  particularly  for  purposes  like  disaster  relief  and  community  infrastructure  projects, but also for personal projects and causes.   A few advantages of BABB fundraising:  ● ● ● ● ● ●

Fundraising  can  use  BAX,  which  makes  it  easy  for  people  across  the  world  to  participate in fundraising without worrying about currency conversion  Fundraising using BAX can support small amounts, less than $1 per participation  Funds are delivered to those in need, bypassing middlemen such as banks  Participants have access to the fundraising history in the BABB blockchain  Funds can be raised privately within a certain group of people, or publicly  Public  fundraisers  can  request  to  be  verified,  in  which  case  they  must  get  approval  in  the  platform  to  start  a  campaign,  so  that  participant  money  is  protected   

17 

      Example: 

Batopilas is a small city in the state of Chihuahua, Mexico. Its water infrastructure  decimated by recent earthquakes, and the population needs $50,000 to purchase a new  water silo to provide potable water to the city.  Alejandra lives in Batopilas and runs a small local charity which provides emergency  water infrastructure to communities hit by natural disasters. She launches a  fundraising initiative through the BABB app and contacts local people to ask for  donations.  Alejandra’s brother Juan lives in the US and he decides to help. He shares the  fundraising initiative with his friends via the BABB app. With donations rolling in from  Batopilas residents and their families and friends, Alejandra’s charity soon meets their  fundraising target. Alejandra shares the news with all donors and keeps them updated  as the silo is quickly completed.  Payments & Payroll  BABB  banking  platform can be used to create a more direct payment flow that connects  payers  and  payees  —  across  borders  or  domestically  —  without  intermediaries,  at  ultra-low fees and almost instant speed.  As  an  example, companies can easily automate payroll processing, instantly disbursing  funds from their BABB bank account to their employees BABB bank account.  Example: 

Maruf  is  the  Managing  Director  of  a  small  factory  in  Dhaka,  Bangladesh.  He  has  previously  outsourced  payroll  processing  to  an  external  provider. This was not ideal, as  it  was  expensive  and  meant  he  didn’t  have  control  over  changes  to  his  employees’  salary  and  bonus  payments.  Maruf  now  uses  BABB  to  pay  his  24  employees,  thereby  incurring one less expense and retaining greater control.  With  a  few  taps,  he  sets  up  the  recurring  payment  in the BABB app. Each month, Maruf  reviews  and  authorizes  employees  payments,  who  now  receive  their  wages  directly  into their BABB bank account.  As  our  App  improves,  we  plan  to  tackle  more  detailed  use  cases  and  encode  them  into  smart  contracts  -  for  instance  deductions  such  as  pension,  income  tax  and  other  contributions could also be automated.   

 

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TECHNOLOGY  Blockchain  The Blockchain is a secure transaction ledger database that is shared by all entities  participating in an established, distributed network of computers. It records and stores  transactions - transfers of information between entities within the network -  essentially eliminating the need for "trusted" and centralized third parties. This  information can be digital currency, identity data, or any other type of structured data.  BABB relies on a blockchain for many of its core services, which makes it a  fundamental piece of technology. It serves multiple purposes, not just recording  transactions, but also notarizing identity data and serving as a secure channel for  sharing data across different participants in the network.  Federation  Validation of blockchain activity  using standard blockchain  consensus schemes, with a federated  blockchain of validating nodes5.   Participation in the network and  initial nodes are managed by the  BABB Platform, with major  participants also running their own  nodes, including Central Banks and  regulators in specific jurisdictions.  This ensures collective oversight and  transparency, while at the same time  allowing for multi-jurisdictional  activity to take place. 

While not exactly at the core of our solution, some relevant points are presented in this article:  http://jonathanpatrick.me/blog/federated-ethereum-blockchains    5

 

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      Smart Contracts and Regulations  The rules for operating BABB accounts will be encoded into Smart Contracts: transfer of  funds, management of data privacy, etc. In addition, we will also comply with the rules  defined by Central banks for the funds they control, which will also be encoded into  smart contracts on the blockchain for their specific currency.  In this manner, the necessary regulations become embedded into the transactional  activity, which ensures a transparent, straightforward, verifiable and predictable  operation, with few surprises to its participants.  Tokenization of FIAT Funds  One of the primary uses of the blockchain at BABB is to store the ledger containing the  bank account balances and related transactions.  For this purpose, any FIAT funds that exist in the legacy banking system are  represented as a token in the blockchain. Once funds are tokenized, users can transact  without the involvement of any intermediary.   Follow a few examples of how this plays out:  1. Deposit EUR via SEPA,  followed by internal  transfer  Let’s consider a scenario  where User A deposits  €1000 via SEPA into their  own BABB account. Once  the deposit is processed  on the banking network,  BABB will issue €1000 in  the blockchain, and keep  the FIAT €1000 in the  bank’s reserve. User A  can then send €300 to User B.     

   

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      2. Withdraw EUR via SEPA  In this example, let’s assume  User A has €1000 in their BABB  Account, and wants to  withdraw €500 to a bank  account at another bank. As a  result of this operation, a SEPA  transaction of €500 will be  initiated, and €500 destroyed  from the BABB blockchain.  Control & Self-Determination  Account holders in BABB are in control of their own funds on the blockchain, and users  can transact on the BABB blockchain without the explicit approval of any intermediary  or central entity.  In other words, only account-holders have access to the necessary private keys, and so  as long as they meet the rules set into the smart contracts that manage the network,  any account-holder can transact their own funds.  Privacy  Transactions and access to private data such as User identity require a private key that  is in the sole possession of the user, on their device.  Under no circumstances will third party services gain access to any user private keys,  nor will they be able to act on behalf of a user, nor access user data unless explicitly  authorized by the user.  In addition, we are aware of the challenges of ensuring privacy on a blockchain, and  will leverage privacy preserving features such as data encryption, zero-knowledge  proof and cryptographic hashing to accomplish our goals. In cases where sharing of  user private data is required, an explicit authorization is requested from the user, and  only the user is capable of authorizing such access with its private key.   

 

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      Recovery & Succession  To ensure that only the user can access their funds, any private keys must be kept only  on their device, which implies that if the device is lost or compromised, access to funds  would be potentially at risk. To maintain user-friendliness of the service and avoid loss  of funds, additional mechanisms must be implemented for Recovery and Succession.  In addition to traditional recovery approaches like having a mnemonic printed or  written down, one of the key approaches for this are Schnorr Signatures, which  essentially allow a private key to be split into multiple pieces, and divided in a way that  M out of N pieces are required in order to reconstruct the original.  Via this approach, a group of designated parties would essentially keep a portion of the  key encrypted on their devices, and would attest to the identity of a person when  necessary. This role can be undertaken by closely related parties like family and  friends, but could also be taken by local parties such as governmental entities or  businesses. In the event of a BABB account that was created via Social KYC, the person  that originally extended the invitation would likely default to be one of the designated  parties.  In short, in a Recovery scenario where a private key was lost, a subset of the designated  parties would allow for a new private key to be associated with the identity, therefore  allowing the person to regain access to their account. In case of a succession event, the  designated parties would attest that such an event has taken place, and would allow for  disbursing funds to designated heirs, which will also lead to smart contracts triggering  any regulatory reporting obligations according to the jurisdiction of the bank account.  We’re still researching these options in conjunction with a thorough regulatory  analysis, but regardless of the combination of mechanisms, it is fundamental that we  maintain the decentralised nature of the system, and that recovery actions can be  undertaken without the person having to cede control to a central or intermediary  entity.  Cloud Hybrid  One of the key goals of BABB is to build a decentralized ecosystem which can survive  the collapse of its participants, and where multiple participants engage with different  roles and permissions. 

 

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      We are however aware of the limitations of existing technology, particularly when  looking to process large volumes of data in a secure manner, connect with legacy  systems or handle the intersection between new technologies, existing regulations and  legacy technologies.   One such example is capturing and processing of biometric data, where current  limitations imply that some of these items will be subject to some form of centralised  processing before going into the blockchain. Another example is the gateway to  sending and receiving funds using traditional banking rails like SEPA and UK Faster  Payments.  Therefore, at this stage there are edge aspects of our solution that will be distributed in  a traditional cloud based manner, making BABB a hybrid of cloud technology with the  best that blockchains have to offer. We will however continue to pursue our goal of a  fully decentralized system that can survive the passing of time and the rise and fall of  organisations.  

Identity & Data  A key aspect of BABB is how it handles the identity and data of individuals, how it  evolves over time for an individual, and how an increased degree of certainty allows for  additional services to be used and restrictions reduced.   Data Architecture  A unique digital ID is created and stored on the federated blockchain environment, in  representation of an identity. The user is issued a keypair, with the private key stored  on their device. The user can associate additional devices, for which separate keypairs  will be generated.  Identity data and identity verifications are stored in smart contracts in the federated  blockchain environment, associated with the ID. This data is encrypted and accessible  solely to the owner of the identity, as identified by one their private keys. Users can also  choose to selectively grant access to specific elements, essentially creating a  permissioned access to their identity data and accounts. 

 

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  Smart contracts then ensure that every transaction is formed with the accompanying  identities, with different information accessible to the different participants in the  transaction, without compromising privacy.  Biometrics  The primary approach to assert a Digital ID is the capture and processing of biometric  data, primarily facial recognition with liveness detection and multivariate voice  analysis. These allow us to provision a new account to any individual, so they can start  using basic services without requiring a long winded registration process.   Given current technology, face and voice recognition are not enough to guarantee a  100% unique match. They are then complemented via fuzzy matching of additional  signals and other forms of identity validation.  Peer-to-Peer Identity Validation  Within BABB, users help validate the identity of other users. Every user who has gone  through the whole identity validation process can vouch for other users in the platform,  thus helping validate their identity. Whenever available and authorised by users,  additional validation is also performed by analsing social graph information.  

 

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      This allows new users to obtain services up to a certain transaction threshold, and  helps extend BABB to millions of people, while ensuring we capture the networks of  trust that exist in real life.  Extended Identity Verification  In addition to biometrics and peer validation, to gain access to more services and  remove restrictions, users will be required to offer multiple methods of proving their  identity, such as by providing additional documentation or, where available, Electronic  ID Verification mechanisms.  Some participants in the BABB platform also have means of verifying the identity of the  people they bring aboard, which can be used to enhance BABB’s level of trust in any  given identity. In addition, we also expect to cooperate with other projects currently  building blockchain-based digital identity solutions.  All of these solutions together work to form the digital ID of the BABB account holders,  and ensure they are legitimate.     

 

 

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SECURITY & RISK  A set of practices guide our Security Plan, with roots in modern established security  standards and a particular attention to the decentralized portions of our infrastructure  and operations. This allows us to adhere to guidelines like OWASP, PCI/DSS, PSD2 and  other relevant security guidelines6.  We follow a multi-layer security pattern, where multiple solutions provide for different  functionality and different capabilities, which in some cases also overlap, in order to  obtain feedback from different sources. 

Human Resources  We have a strict hiring process and require background checks for staff. Staff accounts  on various systems are access setup to require multiple factors, hardware tokens and  authentication via PKI (Public Key Infrastructure) is used wherever possible, and  authorizations granted with clearly defined privileged access and segregation of duties.  We make efforts to maintain all our staff constantly trained in Security and Information  Management, ensuring they know how to handle themselves in the face of both  internal and external threats. We also ensure that policies and guidelines are clearly  communicated and openly discussed, so that the reasoning behind them is fully  understood and encourage adherence.   Last but not the least, our ideal that people come first also has an impact on how we  build our team. We are a diverse bunch, and look to maintain an environment where  people can express themselves freely, with the understanding that making mistakes is  human and solving problems together takes precedence over assigning blame. We  design our processes in an holistic manner where people are naturally supported by  their peers. This approach allows issues to be exposed sooner, transparently and  without fear of repercussion.   

For instance, the [6] SANS Institute Security Assessment Guidelines for Financial Institutions:  https://www.sans.org/reading-room/whitepapers/auditing/security-assessment-guidelines-financial-ins titutions-993  6

 

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Risk Assessment  We follow a risk-based approach to our decisions, and maintain a cross-functional Risk  Register that covers not just our information systems and infrastructure, but also our  financial operations, regulatory compliance, staff, contractors, partners and 3rd party  service providers.  By allowing risk management strategies to permeate all our activity, we are able to  clearly identify complex threats in advance, and react swiftly when new threats are  detected.  In addition, we plan to use up to date machine learning models to leverage information  contained in relationship and transactional networks of people and businesses, greatly  improving the accuracy and reliability of credit scores. 

Business Continuity  We maintain a Business Continuity Plan, planned and tested, including crisis  communications, both in terms of information systems, operations and support  services. The decentralized nature of some of our technology provides us with a natural  advantage in this context, and our state of the art architecture and careful planning  provides for the rest. 

Control Activities  Control activities are the policies, procedures, guidelines, techniques, and mechanisms  that help ensure that the processes to deal with the risks identified during the risk  assessment are actually carried out.  In other words, control activities are actions taken to minimize risk. When the  assessment identifies a significant risk to the achievement of an objective, a  corresponding control activity or activities is determined and implemented.  Preventive controls are designed to discourage or pre-empt errors or irregularities from  occurring. There are many ways to interpret Prevention principles, which is why we  believe it’s best to clarify ours.  Note that these apply not just to information technology, but also to processes and  operations all across the board: 

 

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      Correctness  Security by Correctness aims to ensure that any bugs or malicious code are weeded out  during the software production stages, and never go live.   This strategy has been the focus of various aspects of computer science, including  better developer training and improved development tools such as safe and stricter  languages that by force of structure and strictness try and avoid common mistakes.  Last but not the least, we have code verification tools with heuristics and patterns that  look to identify common issues, and code lifecycle management tools.   In addition to this, there continue to be changes in the programming paradigms  themselves, with a shift to functional programming and formal methods, which are  increasingly more pervasive, particularly in mission-critical environments.  In spite of all these approaches, issues still happen by force of poorly defined use cases,  resource constraints, compromises, interaction between different components and  non-linear system growth. Additionally, purposefully malicious code is often perfectly  valid, and seeing as existing tools cannot be programmed with the ability to assess  code from a deontological or ethical perspective, Correctness can only take us so far.  Simplicity  The Systems Engineering discipline explains that its essence, a system is defined by its  Components and how they interact through a set of Relations. Just by looking around,  it’s easy to understand how a system can have complex components (eg, a person) and  how complex relations can be (eg, family ties).  From a software development perspective, it’s a known fact that complexity is the  enemy of a properly functioning system, and a number of axioms have evolved around  this notion, not the least of which is Occam’s Razor.  It’s not just that components can grow to become complex, it’s also that the Relations in  between different Components grow exponentially. In fact, most bugs in software  development are a result of interaction between different components, and therefore  we look to carefully design the Components of our systems, ensuring they are easier to  understand and operate with fewer Relations, thus keeping complexity at bay.  In short, a simple System is easier to understand, manage and secure than one that is  complex, so striving for simplicity is a major factor in security.   

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      Isolation  We look to break elements of the system into small units that are easy to describe,  design, maintain, and operate in a more independent manner. This kind of  compartmentalization means that if a part of the system misbehaves in any way, it can  only affect other parts in a reduced and controlled manner.  Simple as it may sound, this approach is actually quite hard to pull off. Designing a  system which is partitioned into meaningful pieces and setting permissions and  relations for each piece is an extremely complex task. In other words, individual  complexity is removed from the system, but on the other hand it becomes much harder  to design said system, and relational complexity increases.  Examples of this strategy abound. For instance, development teams are segregated  from operational teams, which means that bug reports observed in production often are  harder to debug due to the development team having only limited access to the  environment and data the issue occurred in. On another example, processes running in  modern operating systems cannot access memory from other processes, which means  that for processes to communicate they need to follow slightly more structured  approaches than just sharing pointers to data.   This scenario has changed with the popularization of virtualization technology.  Previous strategies of process separation and isolation have been rendered mostly  useless in the last few years, which has given rise to the notion of "Infrastructure as  Code", where we program the infrastructure to launch components into their isolated  containers, and very carefully define the relations between said containers.  Obscurity  No matter how hard we work to reduce and remove bugs, we know there's always the  possibility that one will make it through. A Prevention strategy should therefore make  sure any bugs that do occur are very hard to find and exploit.  We use a number of techniques that rely on obfuscation, encryption and randomization,  in order raise the bar on obscurity.   Internal Controls  Internal Controls essentially provide oversight to ensure that the techniques and  processes that have been designed are in fact being followed, therefore preventing  situations of potential fraud or abuse, ensuring things work as intended and any   

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      inconsistencies - purposeful or accidental - are detected and resolved before they have  a chance to cause a negative impact. Absence of such controls can lead to a set of  procedures that look great on paper, but which are not effectively followed throughout  the company and its infrastructure.  BABB relies not just on continuous analysis and automated indicators embedded into  its technical infrastructure. At the same time, we look to foster an environment where  staff does not feel like they have to hide any mistakes they make, and where  peer-review and peer-support are actively encouraged. This ensures that internal  controls are not merely tolerated, but actively supported as means to protect both our  staff, our users and their data. 

Information Management  In order to protect the information resources and depositaries of protected information  that are placed under BABB custody, it is necessary to have clear attributions of  responsibilities and access levels.  In order to facilitate this, the team is structured in a way that promotes segregation of  responsibilities, with the Operational teams functioning separately from Development  and Business teams.  Information classification is established in order to determine the relative sensitivity  and criticality of assets, which provide the basis for protection efforts and access  control.  

Applicational Security  In addition to our own internal procedures, there are a number of techniques and  signals we use to validate and/or increase verification for user activity, particularly:  ● Allow multiple factors for authentication, such as:  ○ something they know, like a password and User ID  ○ something they have, like a one-time-password (OTP) token or a device ID  ○ something they are, like a fingerprint, voice or facial pattern  ○ something they do, like a behaviour or gesture   

 

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      ● Historical activity, including:  ○ Transaction size and relation to overall balance  ○ Transaction history of contacts  ○ Device and browser usage  ○ Geographical history  ● User Interface and Experience, including:  ○ Consistent visual language  ○ Consistent written language  ○ Consistent confirmation prompts  ○ Preview for critical actions  ○ Various other approaches to reduce errors and conscious mistakes       

 

 

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COMPLIANCE & REGULATIONS  Fair Banking  On the organization’s website7 the vision for f​ air banking i​ s laid out as follows:  “​To create banking developments that encourage individuals and families to 

manage their money better and thus improve their well-being. To share in an  open and inclusive way the selected products and approaches, so as to promote  the maximum well-being benefit.  In particular, to enable developments to extend to the less advantaged in society  including those less affluent and younger. To adopt specific measures of  satisfaction which go beyond improving the consumer’s economic  circumstances.  This concept speaks to the very core of BABB. As such, although there are yet no  specific regulation around Fair Banking, our Compliance department is tasked with  observing the Ethical norms set forth in the Fair Banking vision. We seek to integrate  this approach with or observance of the applicable Regulation across the various  jurisdictions in which we operate. 

GDPR  BABB has a unique way of implementing privacy in our Bank. We believe that users  should have control of their own data. With BABB, the users are the data controllers. We  are building a new banking platform incorporating privacy by design. BABB’s native  data privacy and risk management capabilities leverage blockchain and smart contract  technologies. We aim to go a step beyond GDPR, by incorporating all the requirements  directly into our operations.  BABB’s solution will start by implementing three categories of data protection. Each  category has a different level of security and restrictions, with multi-jurisdictional and  multi-language capabilities.   We plan for three broad categories of data protection: 

7

http://fairbanking.org.uk/   

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      1. Private​. This is highly regulated and highly personal data to be used, stored and  controlled only by the user with their private key, which may only be shared with  regulated and accredited institutions following explicit consent of the user.  2. Personal​. This is light personal data. Users will only allow third party access to  their personal profile if they have previously consented to this communication .  For example, cross selling of services, insurance, mortgages, etc. Users maintain  the ability to suspend previous permission given to a 3rd party.  3. Public​. Data which can be used publicly. This can also be a way of interacting  publically, such as for BAX fundraising and payments.   The above privacy tiers are implemented through various means of data storage and  encryption, and are presented in clear and obvious UI, optimized to ensure privacy by  default. Our vision is to implement a global General Data Protection Regulation (GDPR)  as a standard that can be leveraged by all other data controllers. 

KYC & AML  As a regulated entity, BABB will follow all the mandatory requirements for Know Your  Customer (KYC) and Anti-Money Laundering (AML) regulation, with the relevant  programs in place to detect, report and prevent suspicious activity.  As part of the onboarding process, background and compliance checks are executed on  all new users, with additional checks required to access certain higher levels of BABB  services.  The KYC (Know Your Customer) process - including checking the PEP and Sanctions  registries - is of course a key part of the process for identifying users who require  further investigations, and for ultimately providing evidence to enable BABB to  approve/deny new users. The KYC process includes validating the identity of users  involving company and personal ID verification checks for all users.  A successful KYC process must also comply with local regulations, without altering the  customer experience. BABB will harmonise KYC processes and procedures across our  future locations to have a global set of KYC rules, complemented with specific rules to  address local regulatory requirements. 

 

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Social KYC  BABB has a unique method to achieve economic and financial integration while  keeping human relations at the heart of the matter. To create a trustless platform, BABB  creates accounts with digital identities integrated for all its users and verifies them via  a compound KYC process. This validates user identities and gives them access to  services as per jurisdictional regulations.  To remove barriers to banking, users will not need to provide documentation to sign up  on the app. Using various forms of biometrics technology, users can create their Digital  ID in a straightforward manner. This will allow everyone across the world to participate  in the BABB eco-system and be included in the global financial system. For the first  time, technology has provided us with the means to achieve a goal which many have  failed to attain in the past.  For those who want to make more out of their accounts, simple steps can be taken to  finalise the KYC process, such as providing a photo of their passport or other form of  identification, broadening the scope of services they can access.  Furthermore, we are introducing our innovative ‘social KYC’ process, which allows fully  KYC-ed users, with validated documentation, to open a basic account for others. This  will give the invitee access to the basic level of functionality without the need to  provide ID documentation. We believe there is huge potential for rapid expansion of the  network thanks to this ‘social KYC’ mechanism to promote exponential growth of our  user base. This is particularly useful for onboarding the unbanked in emerging markets,  seeing as one of the main barriers they face is lack of documentation. That is, we are  fighting financial exclusion by integrating people such as low-income employees and  refugees/asylum seekers.   Social KYC will include those who cannot provide relevant documentation. BABB does  this by requiring a fully KYC-ed user who personally knows the prospective  undocumented friend/family member to confirm his identity and details. That is, it will  become a Human to Machine KYC process which reduces cost, fraud and internet  hacks. 

 

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PSD2  PSD2 is an European Union directive, which introduces a set of regulatory changes that  are poised to shake the payments and banking industry, breaking the monopoly banks  have on accessing user data and transacting their funds.  Under PSD2, banks must provide ways for users to share their bank data with  authorized AISP (Account Information Service Provider), and also allow users to  authorize PISP (Payment Initiation Service Provider) service providers to initiate a  payment on their behalf, opening up the path for innovative services like P2P transfer  and bill payment.  As you can imagine, this desire for interoperability is a natural fit for BABB: any account  on our platform will meet the PSD2 directive.   Also, PSD2 was initially devised with the goal of providing more transparency on the  costs of international payments, seeing as banks currently hide their fees in  sub-market exchange rates that hide additional fees.  Interestingly, we’ve seen this happen in other markets - for instance a few years back it  was common to see airlines present a price that was never achievable, with additional  fees creeping up in the process.  It is unclear how the requirements for transparency will actually pan out into  regulations. For instance, the UK government response to the last public consultation8,  seemed to indicate a relatively mild approach to the issue of hidden fees.  In line with its ethos of fair banking, BABB is committed not just to Privacy, but also to  Transparency, and will make all efforts to ensure the full and real costs of any  transaction are displayed in a comprehensive and comprehensible manner.   

 

  Implementation  of  the  revised  EU  Payment  Services  Directive  II:  response to the consultation, point 2.9  https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/629988/Implementation _of_the_revised_EU_Payment_Services_Directive_II_response.pdf  8

 

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Local Regulations  As soon as BABB become fully authorised as a UK bank, BABB will provide a global  bank account for anyone who passes KYC.  Central Banks and Banks that license BABB solution will operate a node on the BABB  network and become a nexus for local activity, and for all users on the BABB global  network that need services in that country or geographical area. Their users will  immediately be able to open a local digital currency account with tokenized fiat, and  will be able to interact with users from different countries via the BABB App.  BABB provides the technological capacity for all banking operations including KYC,  along with regulatory guidance and support. This guidance is intended to enable  implementation and compliance to take place at the local level. Each jurisdiction has  unique local regulations and it would be ineffective and inappropriate for BABB to set  out compliance for each bank and Central Bank. A process of decentralised decision  making will ensure that BABB is implemented as a tailored solution in each  jurisdiction.             

 

 

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BUSINESS  BABB is currently licensed as a UK financial institution (Authorised Payment  Institution) by the Financial Conduct Authority, and it is in the process of applying for a  UK banking licence.   It should be noted that although BABB is applying for a UK Banking licence, it is not a  necessary requirement to enable us to achieve the goals laid out in this whitepaper.  Having a UK Banking licence will enable us to hold customer deposits, however, as we  are already an FCA Authorised Payment Institution (API) we can already integrate with  partner banks to hold our customer deposits and access the wider payment network.  

Company Structure  BABB will be properly structured to ensure separation of concerns and liabilities, and  regulatory compliance. Additional research is underway to ensure this structure meets  the regulatory compliance requirements across multiple jurisdictions, and changes  may yet occur.  BABB Platform  BABB Platform will issue the native token BAX and raise funds through the BAX token  sale. These funds will be used for the development of the platform and mobile app, and  also to cover costs running the infrastructure, both cloud and initial federated  blockchain.  BABB Platform will retain copyrights to issue licenses to third parties who wish to  access BABB technology.  We are still researching whether the BABB Platform will be incorporated as a  Foundation or as a Limited company.  BABB App: The Bank  BABB App is the Bank, a completely separate and ring-fenced entity. The bank will raise  funds separately through traditional means, and will be granted an indefinite license  from BABB Platform LTD to operate on its technology platform.  The bank will focus on UK banking, providing the regulatory coverage for the bank  accounts, and developing relationships with other banks and regulated entities. Once   

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      authorised by the FCA as a bank, BABB APP will be able to offer customers protection  under the Financial Services Compensation Scheme (FSCS)9.  BABB Labs LTD: Software Development  BABB LTD will use the funds raised from the token sale to develop the platform and  BABB mobile application. It​ o ​ ffers product and technology development for BABB  Platform LTD, BABB App and other parties who wish to use the technology.   This company will also offer integration, custom development and technology  consulting for partners that wish to leverage BABB technology and products.     

9

 

Details of the FSCS can be founds here: https://www.fscs.org.uk/what-we-cover/compensation-limits/   

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The BAX Token  BABB is launching a distributed application platform where FIAT funds are tokenized.  These tokenized funds will be used by the BABB APP Bank, partner services, banks  worldwide, as well as central banks in developing countries.  The BAX token is used under the hood to operate the services of the platform across all  the geographies and jurisdictions served by the platform. A summary of the token  details can be found on the table in A ​ ppendix IV​.  BAX will be implemented on the public Ethereum blockchain as an EIP20/ERC20 token.  The Ethereum blockchain is currently the industry standard for issuing custom digital  assets and smart contracts, and is compatible with the existing infrastructure of the  Ethereum ecosystem, such as development tools, wallets, and exchanges. This active  ecosystem and technology make Ethereum a natural fit for BAX.  Here’s an overview of the flow of BAX over the whole ecosystem: 

  The strategies described below aim to create an active market for BAX, with a long-term  bias towards token appreciation, which we expect should lead to Banks, Central Banks  and service providers to form reserves of BAX in order to maintain their operations, sell  BAX to their customers, and cover licensing costs.   

 

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      Initial Token Sale  BABB will create 50 billion tokens, allocated as follows: 

  ● Public (60%)  BABB  will  be  selling  60%  of  the  tokens to the public in our token sale. This will be  split over two phases:  ○ 40% sold in phase one, with a pre-sale and main sale in early 2018  ○ 20%  sold  in  phase  two  in  2019  at  the  earliest,  once  the  app  is  live  and  BAX  in use on the platform  ○ Any unsold tokens will be burned.  ● Team (20%)  The  team  includes  the  immediate  BABB  team,  advisers,  early  contributors  and  partners. The team tokens are:  ○

locked for 1 year 

○ 25% are made available at six month intervals  ● Plartform Reserve (18%)  A  portion  of  the issued BAX tokens will be held by BABB Platform in reserve. This  Initial  Reserve  will  enable  the  platform  to  maintain  liquidity  in  its  BAX  operations. See the R ​ eserve Management​ section below for more details.  ● Bounty (2%)  BABB  is  incentivising  our  community  via  a  BAX  bounty  campaign. Details of our  bounty campaign will be available on our website in due course.   

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      Token Utility  The BAX token is the lifeblood of the platform. All services, fees and licensing of the  BABB platform use BAX under-the-hood.  If a user doesn’t hold any BAX to operate on the platform, they can easily purchase the  necessary amount from banks in the BABB platform, and also from other users, online  exchanges and other 3rd party services.   For instance, the BABB Bank app allows for BAX to be purchased a single step, without  impacting user experience and without the need for the user to take extra actions. The  BABB Platform adjusts the amount in BAX required for its services depending on the  average token price in open markets, which provides a stable price experience for the  end user.   It is only natural and healthy that banks may add a small premium over any BAX they  sell, which covers their own costs of service. This paves the way for a fair and healthy  banking industry, where people pay only for the services they use and remain in control  of their own funds and data.  While we are still deciding on the exact structure of costs, we expect platform fees will  be tiny (equivalent to cents of a dollar), for actions such as:  ● Open a new BABB account (the bank covers this fee)  ● Send/receive a transaction  ● Exchange currency  For banks and 3rd Party Services operating on the BABB platform, fees also include:  ● Licensing fees (eg, monthly cost paid by a bank to operate on BABB)  ● Specialized services such as initiating a fundraising campaign  ● Request access to a user’s Identity information (a part of which paid to the user)  This last item is vital, it introduces friction to services that require access to user’s  information, and provides the user with compensation for sharing some of their details.   

 

 

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      Other uses of the BAX Token  In addition to its intrinsic utility within BABB’s platform, BAX may also be used for a  number of other purposes  Onboarding/offboarding  Any service that adds support for BAX can therefore interface with the BABB platform,  and send/receive funds directly to/from user bank accounts. We will look to have BAX  token listed on cryptocurrency exchanges in various geographies, therefore allowing it  to be used as a way to onboard value into and out of the BABB platform, and a gateway  to cryptocurrencies.  Foreign exchange liquidity  BAX may be used as an intermediary when converting tokenized FIAT currencies  between BABB accounts, which facilitates rate discovery, improves liquidity and eases  conversion across local currencies.  International Payments  We expect that in many circumstances - particularly with illiquid currencies of smaller  countries - it will be more practical to send funds in BAX and let the recipient convert to  their currency of choice at their own pace.  Fundraising  To facilitate international collaboration, funds raised via BABB’s fundraising features  may be collected in BAX, which entails additional advantages for participants:  ● Funds can be sent by anyone in the world, not just BABB users  ● Anyone around the world can enter the fundraising without worrying about  currency conversion  ● Fundraising using BAX can support small amounts, less than $1 per participation,  which allows for micro-participations  The redemption of such funds for local currency will be done in accordance with clear  payout schedules that promote reasonable use of the funds.      

 

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      Reserve Management  BABB Platform has strict restrictions on how it manages both its initial reserve and the  tokens received as part of its revenue generating operations.   For transparency and to encourage public scrutiny, the BABB Platform will publish the  addresses of its reserves, and will also look to encode these rules into smart-contracts.  Burn of received tokens  Tokens paid to operate the platform are handled in two separate manners:  ● 50% are burned, effectively taken out of circulation forever. This will happen until  the total amount of tokens in circulation hits 20% of the issued total.  ● The remaining are frozen into the Platform Reserve, so they do not affect market  price for years to come, allowing BAX price to appreciate as the platform grows,  without compromising its future usefulness.  Reserve Liquidation  BABB Platform has ​strict restrictions​ on liquidating any portion of the funds in its  Reserve during the first 5 years following issuance of the token, including any funds  funds captured through its revenue activity:  ● Every day, a daily fraction of no more than 0.055% of the Initial Reserve10 can be  made available for liquidation, therefore effectively limiting any potential impact  on the market price  Funds released in this manner will be liquidated with preference for mechanisms that  minimize the impact on the market price, particularly:  ● Rewards directly to users, to incentivize network growth. This has the advantage  that a sizable portion of tokens released this way will be held by individuals for  their later use, rather than sold on the market. This has far less impact than the  alternative, which would be to sell the tokens for funds to invest into marketing.  ● Sell a portion directly to users. This would be done at a premium over the average  market price. This effectively allows the Platform to liquidate these small daily  amounts without depressing market price. 

10

The daily fraction that can be liquidated is calculated as 1/(5*365)   

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CONCLUSION  BABB’s unique vision for the future of banking is both radical and feasible. BABB will  empower each individual and business within the microeconomy, by creating a  decentralised and inclusive financial system. BABB intends to usher in a new paradigm  of Fair Banking, by embracing emerging technologies and applying a ‘people first’  approach.   The BABB platform has huge potential for growth, through the three main touch points  of the BABB app, the Black Card and Social KYC. By maintaining a physical and digital  presence and implementing a natural viral growth mechanism, we expect to see  exponential uptake throughout our target markets. The BABB proposition is infinitely  better than the current offering across many different use cases. The world is ready for  BABB, and now we need to make sure BABB is ready for the world.  The token sale will raise the funds necessary to develop and distribute the BABB  solution. By purchasing the BAX token, you are taking part in the future we have  outlined here. The BAX token is instrumental in BABB’s functionality, and will be  integrated into the operations of the platform worldwide. There is enormous untapped  potential in the global microeconomy, and BABB (with BAX) has a plan to unlock it.  Join us to help build a World Bank for the microeconomy which is fair, inclusive and  connected.       

 

 

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APPENDICES  The following documents provide additional background information on a few of the  topics we approach in this document. 

Appendix I: Banking Systemic Risk  As we saw in the global financial crisis of 2008, the nature of the systemic risk  ingrained in the existing global banking network poses a significant threat to our  deposits and savings in these traditional banking institutions. In addition, the  centralised nature of banks also poses a threat to our personal data (HSBC in 200911) and  wealth (Tesco Bank in 201612) should they be victim of a successful cyber attack .  The existing banking system is dependent on fractional reserve banking; the system in  which banks are required to back only a fraction of bank deposits in cash should they  be needed for customer withdrawals (usually 10%). Banks lend out the remaining capital  from customers deposits and earn interest on the loans they create. This process  presents significant risks to the bank, and customers deposits, should a large number of  customers choose to withdraw their cash at the same time, or should the number of  loan defaults go out of proportion.  For instance, in September 2007, the UK Bank Northern Rock experienced the largest  bank run in 150 years as customers worried that their deposits were not safe after  hearing news that the bank had no option but to approach the Bank of England for an  emergency loan facility.   Innovation in financial markets led to innovative new products (e.g. Mortgage-backed  securities) which increased the interconnectedness of the banking systems, thereby  increasing systemic risk. With yields at record lows, banks continue to create  innovative risky new products in search of higher yield products. Banks across the  world continue to take on risk with customers deposits through both their investment  banking and retail arms. 

  http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/5886419/HSBC-fined-3.2m-for-losin g-customers-details.html    12 h ​ ttps://www.theguardian.com/business/2016/nov/08/tesco-bank-cyber-thieves-25m    11

 

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      The banking system’s recent history provides a wealth of evidence that it is unfit to  support or stimulate the microeconomy. The last few centuries have been  characterised by continual financial crises, though few have been comparable in scale  and impact to that of 2007-08. In many instances, a collapse of the banking system has  been the root cause, or at least one of several contributing factors which has lead to a  severe economic recession. These recessions weigh mostly on small businesses and  those workers on low-middle incomes who face redundancies, a reduction in social  welfare support and sometimes even the loss of their home.  

  Systemic failures are often complex, and each one is different. That said, there are  common themes of events which can be observed in many different cases. For  instance, discoveries of fraudulent or negligent management of assets by retail banks  are all too common. Retail banks in particular have struggled with asset transformation,  and failed to leverage their resources effectively. External pressures from foreign trade  and commercial risk have also played a role. 

 

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  The Bank of England announced in July 2017 that it is extending direct access to its  real-time gross settlement (RTGS) service to non-bank payment service providers[1], so  they can compete with existing banks to provide current accounts. The purpose of this  change is to create a more diverse payment arrangement with fewer points of failure.   This demonstrated that the UK central bank is recognising and embracing the fintech  firms’ potential to deliver a greater unbundling of banking into its core functions of  settling payments, performing maturity transformation, sharing risk and allocating  capital13.       

13

 

Roland Berger ‘ The rise of Cryptocurrency   

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Appendix II - Recent Innovations  In the last few years, we’ve seen a number of innovations tackling issues within the  banking and payments space. Many address meaningful and real problems within  certain contexts, but have yet to be leveraged in a manner that can address the  challenges faced by the microeconomy in a global manner.   These innovations can be grouped primarily in four areas:.   1. E-Wallets  The first E-Wallets solved a very clear problem: payments. These were initially  developed by non-banking institutions, to make an entry and achieve market share.  Examples of such E-Wallet includes Paypal and Google Wallet, which are built on the  existing infrastructure of payment systems, by linking the email addresses and mobile  phones of users to their bank accounts and/or credit cards.  While these solutions improve the user experience of the payments process, they still  fundamentally rely on the banking infrastructure.  2. Mobile Money  Mobile money schemes place mobile operators in the position to offer payment  services, where cash is accessed via a cell phone, not necessarily smartphone.  For example, M-Pesa in Kenya granted exceptional access to limited budget services,  including payments made for school fees or utility bills. In areas with limited access to  bank branches and unreliable internet connectivity, this type of service offers a  practical approach to cashless payments.  On the downside, it is not universally versatile and is controlled by the  telecommunications companies, each with their own non-interoperable service.  3. New Currency & Credits  These currencies allow communities to develop their own independent economy,  unhindered by a world of compliance and regulations. Normally, they are valid only  within a specific region, or within a company private platform or multiple yet specific  platforms.   Real-life examples include the Brixton Pound in the UK or BerkShares in USA. On the  digital side, we can find examples such as Facebook Credits or Linden Dollars in the   

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      2nd Life virtual world. Credits are frequently used in mobile games and often function  as in-game currency.  Given their restrictions, these approaches are unlikely to result in a global solution.  4. Digital Currency  Digital currency is a digital unit of value and performs three distinctive economic roles  similar to physical currency:  1. A medium of exchange (an intermediary instrument used to facilitate the trade  of goods and services between parties, which circumvents the problems of barter  exchange);  2. A unit of account (as an example, if you spend British Pounds at a British store,  the price tags will be denoted in numbers of British Pounds, as opposed to, say,  number of apples); and  3. A store of value (polymer banknotes are more long lasting than paper banknotes)  Several types of money coexist under this broad definition – cash, commercial bank  money, central bank reserves, virtual currencies and cryptocurrencies - each with their  own set of strengths and weaknesses when fulfilling their roles.  While cash remains the world’s quintessential means of payment, nearly all money has  already been digitised. In the United Kingdom, for example, the physical form of money  in public circulation represented only 4% of broad money balances in 2016 (BOE M4  measurement). On top of the declining popularity, cash has many drawbacks: it is the  main instrument for tax evasion, money laundering and the financing of illegal  activities; it is prone to devaluation in high inflation countries.  In the last few years, we’ve seen a new form of digital currency appear:  cryptocurrencies. These combine a new currency unit with decentralised payment  systems that validate transactions and maintain consensus. These mechanisms use a  publicly visible ledger which is shared across a computing network, enabling users to  reach a consensus that a transaction is valid.   

 

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Appendix III: Central Bank Digital Currencies  To understand why a Central Bank would issue its own digital currency, it’s useful to  take a step back and consider the evolution of technology and global economy.  Why are Central banks interested in issuing digital currency?  Distributed  ledgers  Technology  (DLT),  a  generalization  of  the  Blockchain  technology  popularised  by  Bitcoin  and  Ethereum,  offers  the  technological  breakthrough  to  digitise  cash  while  potentially  withholding  its  main  features: universality, P2P exchangeability,  anonymity  and  a  constant  nominal  value.  With  this  technology,  people are able to hold  assets directly, just like banknotes and coins are held in a wallet today.  Central  banks  around  the  world  are  actively  exploring  the  idea  of  issuing  Central-Bank-Issued  Digital  Currencies14  (CBDC)  based  on  distributed ledgers that allow  members  of  the  public  and  business  to  hold  digital  deposit  accounts  at  the  central  banks  directly  to  make  online  payment  and  P2P  payments,  without  the  need  for  bank  agents.  Similar  to  a  cash  transaction  between  two  parties,  when  value  is  transacted  with  a  CBDC,  the  bearer  instrument  changes  possession  directly  in  real  time.  There  are  two  main  advantages,  one  is  that  it  eliminates  the  need  for  clearing  or  settlement  between  the  parties transacting; it also gives central banks the ability to track CBDC transactions  based  on  near real-time big data analysis through Blockchain. As a result, central banks  can  significantly  cut  costs  relating  to  securing,  distributing  and  processing  physical  notes and coins  While  the  use  of  distributed  ledgers  is  not  strictly  required  for  such  operation,  it allows  remote  P2P  exchange  of  electronic  value  in  the  absence  of  trust  between  the  parties,  and  without  the need for intermediaries, while it also helps to manage the development  of  digital  data  without  boundaries  in  a  secure  manner.  This  improves  efficiency,  resilience, cost and reliability.  At  Babb,  we  think  it  is  inevitable  that  a  CBDC  will  be  adopted  by  at  least  some  Central  Banks  over  the  next  decade.  This  opinion  is based on the following two assessments in  which  the  overall  social  benefits  for  the  micro-economy  will  likely  exceed  the  social  costs.   

Including the Bank of England, the Bank of Canada, the Monetary Authority of Singapore, the Central  Bank of Denmark, Swiss National Bank, Sweden’s Riksbank, the People’s Bank of China and the Central  Bank of Russia  14

 

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      Why should a Central Bank issue its own digital currency?  1: Unregulated cryptocurrencies vs CBDC  There are a small number of privately created digital currencies (known as  cryptocurrencies) today, such as Bitcoin. If these cryptocurrencies improve social  efficiency to the extent that CBDC could, then there would be no reason for a CBDC  issuance. Also, CBDC has the backup of monetary tools and regulations, whereas  unregulated private cryptocurrencies can be a threat to the economy due to its  speculative nature and a lack of economical structure.   However, at present:  i.

Cryptocurrencies cannot completely fulfil the economic roles associated 

with money15 (see table 1). For example, despite the rapid growth of bitcoin-based  payment, bitcoin has a small daily transaction of about US$ 316 million, which is  marginal compared to the large global credit card providers. The small size and  limited acceptance network restrict its use as a medium of exchange.  ii:

Volatility of privately created digital currencies is generally much higher 

than for national currencies, which makes it an unreliable store of money. To  avoid the complexity of the existing monetary and fiscal policy Central Banks  could start implementing DC for the local Microeconomy and maintain the  stability of its digital currency by committing to a fixed exchange rate between  its digital currency and the legal tender (physical notes).  iii:

Cryptocurrencies are not yet used as an independent unit of account, as 

they are often quoted in terms of fiat currencies.   In essence, cryptocurrencies constitute a new category of asset in themselves, and  most aren’t yet widely used as a unit of account and medium of exchange. CBDCs on  the other side, remain legal tender with all the properties of fiat money, plus the  flexibility and ease of local and international transfer associated with cryptocurrencies.   2: Too big to fail & risks  If privately created digital currencies become broadly adopted for making retail  payments, it imposes a systemic risk to the financial system where a failure of a major  private digital currency scheme could result in significant financial losses or even 

15

See Yermack (2013); Lo and Wang (2014); and Ali, Barrdear, Clews and Southgate (2014).   

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      adverse economic effects. To effectively address these concerns, central banks may  wish to establish its own presence in the digital currency market by issuing DC to  formulate oversight framework and ensure systemic risk can be accounted for (the  idea is that the provision of DC cannot be entirely left to the market).  3: Cost and efficiency 

a) Barriers to compete in payment system markets:  In the UK currently only a few banks and building societies (sponsor banks) are able to  hold reserves accounts directly with the Bank of England, this give them direct access  to payment systems such as CHAPS.  This means that challenger banks or banking fintech start-ups who wish to compete  with more established banks must first gain indirect access from the sponsor banks to  be connected to the systems. This puts start-ups on an unequal footing with banks.  In the future, by issuing CBDC that is available to all citizens, the central banks would  create a level playing field that enables new entrants to offer payment accounts and  payment services which were not dependent on access to the balance sheet of  commercial banks. 

b) Foregone transactions and micro-payment  Foregone transactions are those that are economically beneficial to both buyer and  sellers, but did not occur due to existing market frictions. One example would be online  transactions fees, which could be too expensive for relatively small-value transactions  (assessing per-click online articles). Even though consumers may be willing to pay a  small fee to access such items, the seller may not be willing to. 

c) Shadow economic activities, Tax evasion and illegal economic activities  Cash transactions are historically associated with Tax evasions and illegal economic  activities due to its anonymity and the difficulty to trace. CBDC can help to address tax  evasion and even increase the tax base.     

 

 

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Appendix IV: Token Sale Summary BAX TOKEN SALE SUMMARY  Project Description 

Babb is building the first World Bank for the  microeconomy 

BAX Description 

BAX is the native token of the BABB Platform, used to  pay for all fees and licensing, and as a medium for  on/off boarding, exchange and fundraising. 

Ticker Symbol 

BAX 

Token Background 

BAX is an ERC20 token on the Ethereum blockchain 

Start Date 

Public Pre-sale in January 2018 (TBA)  Public Sale in February 2018 (TBA) 

End Date 

February 2018 

BAX token price 

TBA after pre-sale 

Total number of BAX token issued 

50 billion BAX token 

Percentage Public Sale 

60% 

Percentage for community initiatives  

2% Bounty program 

Percentage for long-term alignment of  interests (BABB Team) 

20% 

Percentage locked in Reserve (for  internal liquidity) 

18% 

Limit per ethereum wallet address 

TBA after pre-sale 

Handling of unsold tokens 

Unsold tokens from the Public Sale will be b ​ urned 

Escrow of funds 

Multi-signature Escrow wallet, 3 out of 5 signatories 

Accepted cryptocurrencies for BAX  token sale 

Ethereum only 

 

   

 

 

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DISCLAIMER  This document is currently considered a draft, and while we make every effort to  ensure that any material herein is accurate and up to date, it may not be exhaustive. It  contains forward-looking statements and is likely subject to further changes without  notice.   BAX tokens are not intended to constitute securities in any jurisdiction, and you may  not acquire any if that conflicts with any laws in the jurisdiction or you are subject. This  document is not meant as investment advice, and does not imply any elements of a  contractual relationship.  A more thorough disclaimer will be published in a later version of this document, but if  in doubt, please seek professional legal advice.   

 

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